Income-seeking investors are taking a closer look at dividend-paying exchange traded fund options in the ongoing hunt for returns in a low-yield environment. Many dividend ETF searches begin with the largest funds by assets with a diversified approach.
Matt Krantz for USA Today explains that ETFs are investments similar to mutual funds that hold a basket of stocks. Dividend ETFs allow investors to buy an index of companies rather than choosing individual stocks. [S&P’s Best Dividend ETF Picks]
With the multitude of dividend ETF options available, it is not always clear which ETF is right for an individual’s portfolio. For example, take the Vanguard Dividend Appreciation ETF (NYSEArca: VIG) and SPDR S&P Dividend (NYSEArca: SDY). [Dividend ETFs Without the Label]
The providers of the funds, Vanguard and State Street Global Advisors, are both industry leaders in ETFs. [Dividend ETFs See Performance Diverge on Sector Allocations]
In comparing dividend payouts, the Vanguard ETF has a 12-month yield of 2.35% compared to the 3.56% found in SDY. While SDY has the more attractive yield, VIG’s holdings include companies that have raised dividends at a quicker pace. According to Morningstar, VIG yields have risen over the past few years, while SDY has seen its yields fall, according to the USA Today report. [Dividend ETFs Under the Microscope]
Additionally, VIG has experienced lower volatility and risk compared to SDY, as measured by their standard deviations. [Choosing the Right Dividend ETF]
Bid/ask spreads on the two dividend ETFs are comparable, according to the article.
Lastly, VIG has a cheaper expense ratio of 0.18% compared to SDY’s fees of 0.35%.
SPDR S&P Dividend
For more information on dividend payers, visit our dividend ETFs category.
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.